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# Timor-Leste’s Oil Revenues Are Shrinking. Its Economy Still Needs a Plan B
- URL: https://www.insidetimorleste.com/timor-lestes-oil-revenues-are-shrinking-its-economy-still-needs-a-plan-b/
- Published: 2026-09-29T09:52:08.000Z
- Updated: 2026-09-30T10:25:38.000Z
- Author: Diligente

*Government spending accounts for most of the country’s projected growth, while economists question whether its oil wealth is building an economy that can stand on its own.*

**By Rilijanto Viana** · Adapted from *Diligente*

**DILI, Timor-Leste —** For every dollar’s worth of goods Timor-Leste exported in the first half of 2026, it imported nearly $29 worth. Government spending is expected to drive most of the country’s growth this year; private investment and exports will contribute little.

The figures point to a challenge that has persisted since independence in 2002\. Timor-Leste has used oil and gas wealth to finance development, but economists say it has yet to build enough businesses and jobs to sustain growth without it.

The Southeast Asian nation of about 1.4 million people, also known as East Timor, saved a large share of its petroleum revenue in a sovereign wealth fund. The Petroleum Fund helps finance government spending even as direct oil and gas revenue is projected to fall from $36.1 million in 2025 to $14.1 million in 2026, a drop of about 61%.

![](https://storage.ghost.io/c/c9/48/c948820d-0f02-4517-bc85-1ad5be0a6339/content/images/2026/09/Inside-Timor---Oil-Revenue.png)

If current withdrawal patterns continue, the fund could shrink substantially or even be exhausted around 2037, warned Rui Gomes, an economist and former finance minister.

“This is not a pessimistic scenario,” Gomes said. “It is a mathematical reality.”

**Growth that depends on the government**

Timor-Leste’s non-oil economy is forecast to grow 5% in 2026, up from 4.5% in 2025, according to a midyear review by the Central Bank of Timor-Leste.

Government consumption is projected to contribute 3.1 percentage points to that growth, and public investment another 1.5\. Together, they account for 4.6 of the projected 5 percentage points — more than 90%. Private investment is expected to contribute 0.3 points and exports just 0.1.

It is unclear whether that public spending also creates lasting businesses and jobs.

![](https://storage.ghost.io/c/c9/48/c948820d-0f02-4517-bc85-1ad5be0a6339/content/images/2026/09/Inside-Timor---Estate-Growth.png)

“The economy is geared mainly toward government consumption, with little emphasis on investment and production,” said António Serra, a Portuguese economist who formerly advised Timor-Leste’s central bank and parliament. Reliance on the Petroleum Fund “is not a risk,” he said. “It is a reality.”

Serra traced part of the problem to the country’s 2011–2030 Strategic Development Plan. He argued that it was written to justify a decision already made: that petroleum wealth could pay for rapid development. He directed his criticism at Prime Minister Xanana Gusmão, who was in office when the plan was adopted.

“We have two oil wells, so we are rich, and we must make use of what the good Lord gave us,” Serra said, summing up what he considered the thinking behind the plan. He called that approach the “original sin” of Timor-Leste’s economic policy.

*Diligente*, the Dili-based outlet that first published this report, reached out to the Prime Minister’s Office regarding Serra’s comments, but has received no response.

Diligente asked Vice Minister of Finance Regina de Jesus Sousa to comment on plans to increase private investment, domestic production and exports, and on the outlook for public finances as petroleum revenue declines. She did not address those questions. “I still need to read the report,” she said.

**Public spending, imported goods**

When local producers cannot meet demand, spending in Timor-Leste pays for goods made elsewhere. The country imported $565.6 million in goods in the first half of 2026, according to central bank figures. Domestic non-oil goods exports totaled $15.5 million. Including re-exports, goods exports reached $19.7 million — the figure behind the nearly 29-to-1 ratio.

![](https://storage.ghost.io/c/c9/48/c948820d-0f02-4517-bc85-1ad5be0a6339/content/images/2026/09/Inside-Timor---Good-imports.png)

Hélder Lopes, the central bank’s governor, pointed to both the trade gap and the narrow range of goods Timor-Leste sells abroad.

“Our exports are very small compared with our imports,” Lopes said. “They are also concentrated. We have practically only coffee, while other products have a very small presence.”

Coffee accounts for about 56% of non-oil exports. That concentration leaves export earnings vulnerable to coffee-price swings, heavy rainfall and crop disease, Gomes said.

Lopes called for Timor-Leste to produce more of the goods it imports and to expand exports once local producers can meet domestic demand. Serra also supports replacing selected imports where local production is viable. He criticized the government’s decision to roll back tariff increases, arguing that some protection would help Timorese producers compete.

**Savings that buy time**

The Petroleum Fund’s balance is projected to decline from $18.6 billion in 2025 to $18.4 billion in 2026, according to central bank figures.

According to the central bank figures cited by *Diligente*, the government withdrew about $1.45 billion from the fund in 2025\. Its midyear review projected withdrawals of $800 million in 2026\. Both amounts far exceed direct petroleum revenue: $36.1 million in 2025 and a projected $14.1 million in 2026\. The fund also earns investment income, so changes in its balance cannot be explained by withdrawals and petroleum revenue alone.

The fund’s *estimated sustainable income* serves as a benchmark for annual withdrawals. It is calculated as 3% of total petroleum wealth: the fund’s assets plus the estimated value of future petroleum revenue. Parliament can approve withdrawals above that amount. Withdrawing more year after year, without enough investment income to make up the difference, erodes the fund over time.

Gomes said withdrawals have exceeded the benchmark since 2008\. Serra questioned whether the additional spending has created enough lasting economic activity.

“Much of the money spent beyond the estimated sustainable income is badly spent, wasted on extremely expensive investments with little productive value,” Serra said.

He cited construction in Oé-Cusse, a Timorese exclave on the north coast of Indonesian West Timor. Serra argued that the project’s scale was out of proportion to its practical results. He stressed he was not alleging theft.

The Petroleum Fund has helped Timor-Leste weather past crises, Gomes said. But a financial cushion does not prove that businesses and households could withstand a shock without continued government support.

**Young people “vote with their feet”**

Limited private-sector growth also means fewer job opportunities at home. Many young Timorese seek work overseas.

“Faced with a shortage of adequately paid jobs, young people vote with their feet,” Serra said.

Timorese workers abroad sent home $104.5 million in the first half of 2026, according to the central bank. After remittances sent out of Timor-Leste were subtracted, the net inflow was $56.9 million.

The United Kingdom accounted for 40.5% of remittances received, followed by Australia at 33% and South Korea at 11%. A Timorese government report identifies Portuguese passports as one route used by Timorese migrants who move to the United Kingdom.

A [2021 national labor force survey](https://www.ilo.org/resource/news/timor-leste-launches-its-2021-labour-force-survey-report?utm%5Fsource=chatgpt.com), conducted with technical support from the International Labour Organization, found that 30.5% of people ages 15 and older were working or looking for work. Gomes said roughly 73% of salaried jobs were in the public sector, tying much of paid employment to government finances.

Remittances support families and bring money into the country. Serra said the demand for overseas work also reflects the shortage of attractive jobs in Timor-Leste.

Lopes welcomed the incoming payments but expressed concern about money leaving when foreign workers in Timor-Leste send earnings to their home countries. He likened money to the economy’s blood and said more of it needed to circulate within Timor-Leste.

**Reform plans stall**

La’o Hamutuk, a Timorese research and advocacy group, said the country does not lack studies or proposals for diversifying its economy. The problem is carrying them out.

“Without political commitment, it is very difficult,” said Élia da Costa Araújo, a researcher and spokesperson for the group. “Even the most relevant recommendations and discussions rarely become reality.”

The group cited bureaucracy, shortages of skilled workers, frequent changes in leadership and businesses that depend heavily on government contracts. It called for a national policy with clear priorities, measurable targets and a timetable.

Gomes identified other barriers. Banks hold substantial deposits, but relatively little of that money reaches businesses and households as loans. Unclear land rights make borrowing and investment harder. Timor-Leste’s use of the U.S. dollar also limits the monetary tools available to respond to economic shocks.

Gomes said the country should use its membership in the Association of Southeast Asian Nations, which it joined in 2025, to pursue reforms in land administration, customs, business licensing and trade. In his view, regional integration could give those reforms greater urgency.

The Petroleum Fund has bought time, Gomes said, but not indefinitely.

“The choice is between undertaking planned reforms while there is still financial room to do so,” he said, “or waiting until a crisis forces the country to reform.”

*This article was adapted from Diligente on Sept. 11, 2026.*